Supreme Court allows withdrawal from a construction contract without a grace period

A decision of the Austrian Supreme Court (5 Ob 120/21i) clarifies that a customer commissioning construction work may withdraw from the contract after losing trust in the contractor because delivery obligations were not fulfilled on time. Such withdrawal may even be permissible without setting a grace period.

The case concerned a consortium of construction companies commissioned to supply edge-walkway covers and supports for a new railway line. Many covers proved defective and did not meet the agreed dimensions. Far too few were delivered. The customer then set a four-week grace period for delivery of the remaining covers. During that period, an inspection of one of the consortium's factories revealed that it would be unable to supply the missing covers by the deadline. The customer therefore withdrew immediately, without waiting for the grace period to expire, and commissioned other companies to carry out substitute performance.

The consortium nevertheless considered that it had acted correctly and sued for the outstanding contract price. On final appeal, the Supreme Court held that withdrawal normally requires a reasonable grace period for the defaulting contractual partner. However, none is necessary where that party is clearly unable to remedy the failure or seriously and definitively refuses performance. A right to withdraw without a grace period also exists where one party has lost trust in the other because of conduct contrary to good faith, making continuation of the contract unreasonable.

Here, withdrawal without a further grace period was permissible because the factory inspection showed that the consortium could not deliver the agreed quantity on time: the factory did not even have the formwork needed to manufacture the covers.

This decision shows that a grace period need not always be set or allowed to expire before another business can be instructed. The conditions for withdrawal without a grace period nevertheless depend on the circumstances of the individual case.

If you face legal difficulties with building clients or construction companies, I will be pleased to provide detailed advice at my office. Contact me for an initial consultation.

Mag. Patrick Maydell, LL.M.
Attorney at Law
Neustiftgasse 17/1/9
1070 Vienna
Telephone: +43 1 2954251
office@maydell-law.at